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CSFB Said To Be 'Stunned' By Proposed $250m Fine

Nov 23, 2002 | The Washington Post

Regulators told Credit Suisse First Boston Corp. yesterday that the firm will have to pay $250 million to settle probes into alleged conflicts of interest, a figure far higher than the firm had expected, according to sources familiar with the meeting.

The discussion was the first of many meetings in which regulators will inform Wall Street firms how much they will be expected to pay to settle multiple investigations by state regulators and the Securities and Exchange Commission. It was seen as an indicator of how tough regulators may be.

Credit Suisse executives told regulators including officials from the Massachusetts secretary of state's office, who headed the Credit Suisse part of the probe - that they were ''stunned'' by the size of the proposed fine, an official at the firm said. He noted that Credit Suisse paid $100 million this year to settle a probe into its initial public offering practices. The firm has since revamped internal policies and hired former SEC enforcement director Gary G. Lynch as general counsel.

''Why aren't we getting credit for what we've already done?'' one executive at the firm asked. He said Credit Suisse would have trouble paying the fine because of declines in the stock market. Credit Suisse was given until Dec. 11 to reply, according to sources.

The Massachusetts regulators have been investigating whether Credit Suisse misled investors with positive research reports intended to curry favor with investment banking clients and improperly awarded IPO shares to executives at companies that were also banking clients. New York Attorney General Eliot Spitzer; the SEC; NASD, the securities industry's principal self-regulatory body; and regulators in numerous others states are probing similar charges of conflicts at other investment banks and brokerages.

Those investigations have been an embarrassment to Wall Street, which is trying to negotiate a global settlement that would stop the investigations. The meeting yesterday with Credit Suisse was part of that effort.

In recent days, officials in Spitzer's office have warned Citigroup Inc. that civil or criminal charges remain a possibility if the firm does not agree to pay a large fine, as much as half a billion dollars, and make structural reforms. Spitzer also wants the release of documents and interview transcripts generated by the probe.

Spitzer, who sparked many of the current probes with his investigation into Merrill Lynch & Co. this year, is probing Citigroup's Salomon Smith Barney Inc. brokerage and investment banking unit. The probes have centered on whether analysts issued inflated reports on firms to win investment banking deals for Salomon.


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